The Top 4 Reasons Why Expats Are Underinsured

Well, I didn't expect that!

I recently read an article about 60% of brits not having life insurance. It was a story that made me raise an eyebrow. Everything that I’d learnt about financial planning said sound practice started with protection. It went on to say that 43% of people without life cover had children, 38% were married and 16% had a mortgage.
 
The biggest trigger for taking out life cover was getting a mortgage and the second, having a child. Though this was far from immediate, on average it took 11 months and 14 months after the respective event. This information came from research done by comparison site MoneySuperMarket.
 
Given that you can buy life insurance in the UK at the supermarket checkout, this data was quite shocking. Also the fact that there were such long periods after the trigger event occurred was a surprise. If life insurance is was such an important part of the financial planning process,what was going on? These figures were alarming!

Forty Three Percent of people without life cover had children

What's the cause?

Had the changes in regulations for financial planning been a factor? The move from commission to fee based advice didn’t have a direct impact on life insurance. Though had the prospect of paying fees stopped people getting advice? It was always a counter argument against the introduction of the fee based system. People with tighter budgets suffering because they may not be able to afford to pay fees. Whilst the current system has brought transparency, are people getting left out?
 
At the same time the supply of life insurance providers and direct selling had sky rocketed. The article didn’t draw any conclusions for the reasons it did seem as though something was wrong. It seemed to me that people may not be getting that external prompt they need to sort out their life insurance. Sometimes what we need something different to what we actually think we need. This is the role of the financial planning process.

What about expats?

This got me thinking, if the situations so dismal in the UK then it had to be much worse in the expat community. Whilst this is difficult gauge given the geographical range and national diversity. There are some key factors that point towards this being the case.
 
Expats have the very same reasons for not getting cover sorted out as their domestic counterparts.
 

Mortality

For starters people don’t like thinking about their own mortality. We don’t like to think about death and life insurance is a big reminder for anyone.
 
One thing that’s clear from the 11 and 14 months is that people always think that they’ve got time. Let’s be honest applying for life insurance is one of those jobs that’s easy to push to another day. Unfortunately sometimes we don’t have more time and there’s no way of knowing this.

Decisions Hurt

We always have excuses for not making a decision because deciding is hard. In fact making decisions is thought to be the most energy draining activity that we do. So, we’ll do it when we lose some weight, stop smoking or once we’ve got the summer holidays over and done with. Anything to not think about it right now.

We don't like insurance companies

For others it may be a mistrust of insurance companies. We all read stories about insurance companies not paying out. No one doubts that this doesn’t happen though in reality this is in a minority of cases. Something going wrong makes for much better headlines than everything going right. On the whole life insurance is reliable and pay out rates are in the very high 90th percentile. In fact most modern policies payout on the diagnosis of a terminal illness.

Lack of understanding

It may also be that they don’t understand what they need. What type of policy should they get or how much and for how long do they need it. The financial services world tends to be full of acronyms and technobabble. This is very off putting for some people.

More important things to do!

Another misplaced, yet common attitude is the money’s better spent elsewhere. No one wants to have to claim on their life cover, though if needs be it provides welcome security for your family. One less thing for them to worry about if they lose you. On the whole the cost of life insurance has been getting cheaper making it more affordable. So, if you’re unfortunate enough to claim on a life policy it will be one of the best returns you’ll get from any investment that you make. This makes it money well spent.

people always think that they've got time

Why it's Harder for expats!

Those are some of the main reasons that everyone faces when it comes to sorting out life insurance. On top of these there are extra obstacles that an expat faces getting life insurance. These are the extras that are likely to push the uninsured rate over that 60% level. So let’s take a look at some of these hurdles in more detail.

1. Insurance from back home stops working

Even if you’ve been proactive and got some life cover when you needed it, things change when you become an expat. It doesn’t matter where you come from in the vast majority of cases moving abroad will end your cover. You may have sent through a change of address notification and they still take premiums.
 
This doesn’t mean that you’ve still got cover. They won’t link the change of address and cover ending until there’s a claim or you ask the question. This is because a customer service reps training only extends to processing the form. They don’t have the product knowledge to establish whether you’re still covered. The insurance company’s system also won’t flag the issue. Unless someone makes them it never will either as they have no incentive to act.
 
Cover will stop between 3 and 6 months after you’ve moved abroad. The insurance company keeps getting their money and if your family has to claim, they’ll have problems. The insurer will decline the claim because you’ve been living overeseas. Your family may kick up a fuss and say that the insurance company was sent a notification. The insurer will repay premiums that they took since the cover effectively ended.
 
So you should be asking your insurer whether they still cover you or not. If they say that they will, make sure that you ask for written confirmation and ask if there are any conditions.
 
Australians like to think that they’ve always got life insurance through their superannuation. In a few cases this may be true though again in the vast majority of cases it isn’t. Cover will stop after 3 months and they’ll continue taking premiums from your account.
 
There’s also new legislation that took effect on 1st July which is a further complication. If you’re an expat who does have cover via their superannuation scheme it could have stopped. If your account is inactive for 16 months then life cover will stop. You can either reactivate the account or “opt-in” and keep the benefit.

2. Expat advisers don't like insurance

Some people may already be aware that their life cover doesn’t work for them anymore. Others may not have needed any life insurance until they became expats. You may decide to do something about it though looking at those figures from the UK the odds are you won’t of your own bat.
 
You could meet with a financial adviser who specialises in dealing with expats. At this point we’d expect the adviser to highlight your need for life insurance. As we’ve already mentioned it’s an important part of a sound financial plan. This is unlikely though, for many expat advisers life insurance isn’t a priority. In fact most will go out of their way to avoid recommending a life insurance policy. They’ll favour investment business and life assurance because it’s easier to set up. Unfortunately, life insurance has lots of paperwork and medicals mean lots of organising.
 
As we mentioned earlier this lack of prompting has consequences. People seem to need a degree of external guidance to sort out their life insurance. Expats are by no no means an exception to this either.

3. Get Insurance, Move, Repeat!

Another route that an expat may take is to look at local products. This can lead to some issues which in turn can result in you having inadequate or no cover at all at some point.
 
First of all the financial regulation where you’re now living may not be as advanced or as stringent as home. This can mean that product disclosure can be less transparent. It can also mean that if you get stuck with a product that’s not suitable for you there’s not much you can do about it. People may think that they have one thing and have something completely different.
 
Another issue you may encounter is restrictions on the life cover a foreigner can have. Most commonly this is in the form of the benefit amount that you can have. If the limit is below the cover level that you need, then this is an issue.
 
Taking out a local life policy can also expose you to currency risk. If you have debt in one currency and your life insurance is in another you could run into difficulties. If your life insurance currency falls then the benefit value may be below the debt value. If there’s a claim at this point then there’s going to be a shortfall. The lender will expect your family to make this up. Your family will have to keep up the repayments until they sell the asset and repay the debt. This isn’t always the fastest process and can take months even years. If they can’t make these repayments then the interest will snowball and erode any equity. The shortfall could be bigger than you may expect because currencies. Don’t think that this can’t happen it has and it will again. In 1998 there was the Asian currency crisis the Indonesian Rupiah lost 80% of it’s value and the South Korean Won 50%. Even the Australian dollar fallen by 40% against the US dollar and it’s still dropping.
 
The biggest issue with expats getting a local life policy occurs when they move on. It’s a situation that can lead to them not having cover at all. As with the cover that you had back home cover on a local policy will end. This means going through the process of applying for life insurance all over again. What happens if you can’t? What if you’ve had a serious illness? You may find that you’re uninsurable which exposes your family to financial risk. This would mean that they’re unable to clear any debts and have to find a way to keep making those repayments.

4. It can be hard to find

All this means that the best option that an expat has available to them is an international life policy. This will provide them with a completely portable solution. If they move the cover moves with them giving them continuity. This means no more applications and medicals.
 
Most importantly they don’t run the risk of being uninsurable due to ill health. In the vast majority of cases we would always recommend a term life policy.
 
The issue here is that the number of insurers who provide such policies is very limited. To complicate matters further availability can reduce depending on where you live. Expats, living in more regulated jurisdictions will have more options available to them. Where as expats living in other countries that are more opaque may have very little choice.
 

Most importantly they don't run the risk of being uninsurable due to ill health.

So what about you?

Whilst we can’t say for sure if the rate of insurance is lower in expat communities. The assumption that it would be isn’t an enormous leap given these extra obstacles. I didn’t expect the UK figures to look anything like they did and getting insurance there is very easy. There’s an extensive array of insurers subject to stringent regulations. Over the years we’ve met so many expats who thought that they had their life insurance sorted out. When they started to ask the right questions they found out that they weren’t.
 
Whatever your views are please believe us when we say life insurance could be some of the best money you spend. If you’re an expat start taking the steps today to make sure that you’ve got it right!

it's worthwhile asking your company if you can stay on their health plan

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